Course: Principles of Microeconomics (ECON 1) · Silver Oak University (fictional sample) · Prof. Kessler
Focus: Factor / Labor Markets — Derived Demand, VMPL & the Hiring Rule · Objective 7 · SLO A & B

📋 Module Overview Page — "Start Here" (Canvas: Page, published)

Week 13 — Factor / Labor Markets: Derived Demand & the VMPL

Last week you learned how oligopolists and monopolistic competitors decide what to sell. This week you move to a different market entirely: the market for labor (and other factors of production). Here the question is not "what price should I charge?" but "how many workers should I hire?" The answer turns out to be driven by the same marginal logic you've been using all term — just applied to the other side of the firm.

The big question: How does a firm decide how many workers to hire — and what drives wages across different jobs?

By the end of this week, you can:

• explain why labor demand is derived demand — demand for workers comes from the demand for the output they produce;
• compute the value of the marginal product of labor (VMPL) for any worker (VMPL = MPL × output price) and explain why it falls as employment rises (diminishing MPL);
• apply the profit-maximizing hiring rule: hire workers as long as VMPL ≥ wage, stop when VMPL < wage;
• predict how a change in output price or worker productivity shifts the entire labor-demand curve;
• discuss the wage-differential debate (human capital, compensating differentials, discrimination, market power) in a way that keeps the positive and normative lines clear.

Do this, in order:

1. Read & watch — the Week 13 resources (≈40 min). → Readings & Resources page
2. Lecture Tutorial — work through derived demand, MPL, VMPL, and the hiring rule with your AI tutor (≈45 min). Due Sun, Nov 29. → submit the chat share link + summary
3. Practice Exercises — 6 quick reps, ungraded (≈15 min).
4. Quiz 13 — 10 questions, closed to AI (≈20 min). Due Sun, Nov 29.
5. Discussion 13 — "Why do some jobs pay so much more than others?" Initial post Fri, Nov 27, replies Sun, Nov 29.
6. Assignment 13 — VMPL and the labor-market problem set (100 pts). Due Sun, Nov 29.
7. Workshop 13 — Graph & Model Workshop — compute VMPL from an MPL schedule and find the profit-maximizing number of workers (50 pts). Due Sun, Nov 29.

Thanksgiving note: Week 13 runs during Thanksgiving week. Prof. Kessler allows a 48-hour grace period on all submissions; everything is still due by Sun, Nov 29 with no late penalty.

A note before you start: this week's math is deliberately clean — VMPL is just multiplication. The insight is the reasoning behind the numbers: labor demand is not set arbitrarily, it is pinned to how much value each additional worker adds. That principle explains everything from the wage of a surgeon to the wage of a farm worker.

📣 Welcome Announcement (Canvas: Announcement; available_from_offset_days = 84 — posts Mon, Nov 23)

Subject: Week 13 — Why does your wage depend on what customers pay for your product?

Hi everyone,

We've been asking "how many units should a firm sell?" all semester. This week we flip the question: how many workers should a firm hire?

The answer is more elegant than you might expect. A profit-maximizing firm hires an additional worker as long as the value that worker adds to output — the value of the marginal product of labor, or VMPL — is at least as large as the wage. Once VMPL falls below the wage, hiring stops. That's it.

The big insight: labor demand is derived demand. Firms don't want workers for their own sake — they want workers because workers make the output that customers buy. Which means anything that raises the value of what a firm sells (higher product price, more productive workers) raises the demand for the workers who make it.

This week also opens up one of the most contested questions in economics: why do wages differ so much across jobs and across people? We'll lay out the main explanations — human capital, compensating differentials, discrimination, market power — and keep the positive and normative sides of that debate honest.

Start with the Module Overview ("Start Here"), then the readings, then the Lecture Tutorial. Bring your VMPL table to class — we'll fill it out together.

See you in class,
Prof. Kessler